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Proposed fees for natural health products: Annex B, Costing data and tables

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Costing methodology

Health Canada's approach to costing for activities relating to health products is based on the Treasury Board Secretariat's Guide to Cost Estimating. This guide sets out the Government of Canada's concepts and principles for costing. Our approach was used to update the fees for drugs and medical devices in 2020 and to develop the fee proposal for biocides in 2022.

Health Canada has a program‐wide time tracking system (the Cross‐Application Timesheet – Project System, or CATS‐PS) for health products. We use this system to collect level of effort by activity, including tracking the time spent reviewing individual applications. Costs are calculated by applying employee salaries to this level of effort, based on the highest pay level for the employee's classification and the most recent rates of pay. This system allows both direct program costs and indirect program costs to be assigned to activities based on their use of resources.

We also developed and implemented a tool that defines key health product activities and thus enables us to allocate costs across programs and product lines.

The information from both tools is aligned with the data in our financial system (SAP), which allows for more accurate cost mapping.

We also have methodologies in place to allocate internal and corporate services and capital costs.

The information from these structures and systems was used to establish and validate the proposed fees.

Existing costs

We determined the costs of current NHP activities by totalling all applicable costs (program direct and indirect costs, corporate costs and capital costs). We developed a costing model that makes it possible to link costs to specific activities within a branch and to calculate total costs by fee line. We used 3 fiscal years of data (2018-19, 2019-20 and 2020-21) from the time tracking system and made adjustments where necessary.

The total costs include both the direct costs to support product and site licence applications as well as indirect costs. Costs were allocated proportionally as follows:

Costs by type are summarized in Table 4.

Table 4: NHP costs by type
Program costs

Direct: Includes costs for submission review, compliance and enforcement, and post-market surveillance

Includes salary for NHP application reviewers and inspectors, costs associated with laboratory analysis, and operating and maintenance costs

Direct service support: Includes costs for activities that support individual activities, such as screening, reviewing and approval processes of individual submissions/inspections or the oversight of direct activities

Indirect: Includes costs for program overhead (such as management, planning and reporting, policy work, and audit and evaluation work)
Capital costs Includes maintenance, upgrade and investment costs for laboratory equipment, information systems and fleet costs for inspectors

Corporate costs

These costs are related to services provided by Health Canada's corporate branches, including:

  • 22% of total program costs for internal services (such as management and oversight for access to information requests, audits and evaluations, communications, human resources, financial management, information management and technology
  • 27% of salary costs for the Employees Benefits Program
  • 13% of salary costs for accommodation
  • 4% of salary costs for Shared Services Canada

Prospective costs

Health Canada is committed to undertaking new activities to improve the NHP program. Our goal is to:

To meet the proposed obligations, including establishing a robust fee regime, we need more resources, such as:

Costs for these prospective resources were added to the existing unit costs, to generate an overall unit cost for each fee. Methodologies to establish costs under each individual fee line are described in the next sections.

Costing for pre-market evaluation (EVAL) activities

This fee line includes activities such as:

We used the costing method described earlier to determine the hourly rate and the volume and average time spent on applications within each existing fee category. This data was based on all applications completed between April 2018 and March 2021 (the reference period). We then determined the hourly rate for each fee line by dividing the total costs by the calculated total direct hours spent on each fee line. To arrive at the current unit cost for each fee line, we multiplied the hourly rate by the average time required to complete an application in that fee line.

For Class III novel applications, we used the same hourly rate as for Class III applications. The time to complete this new application type was estimated to be 70 hours, which is consistent with time tracking data for the most complex NHP submissions.

For Class III novel amendments, we have set the fee as follows:

We have not factored into the current fee structure the costs associated with conducting risk management plan (RMP) reviews. We will, however, be tracking our costs and revising the fee structure in the future as appropriate.

Prospective costs were added for the following:

Corporate costs were applied to prospective costs in the same way as for existing costs. We then calculated the prospective unit cost by dividing total prospective costs (including corporate costs) by the number of applications received in the reference period. Note the overall unit cost is the sum of the existing and prospective unit costs.

The prospective costs are higher than the existing costs because of required investments to improve the regulatory program and meet the commitments of the CESD audit.

For example, for Class I applications, there are significant system and IT investments to support the automated validation system for single ingredient applications and to support and update various web applications. For Class II and III applications, there is a significant investment of resources to support the implementation of quality review, which is not currently being done.

Additional resources have also been included in the prospective costs for Class III to help ensure performance standards can be met. In addition, all fee lines will require digitization, so those costs have also been added.

Pre-market evaluation costs are summarized in Table 5.

Table 5: Estimated total costs for EVAL fees
Activity or amendment Average annual existing costs Average annual volume Average level of effort (hours) Existing unit cost Estimated annual prospective costs Prospective unit cost Unit costFootnote 1
Class I application or amendment $1,840,975 5,091 0.92 $336 $5,244,156 $1,030 $1,366
Class II application or amendment $3,186,350 2,086 2.72 $1,415 $4,046,157 $1,940 $3,355
Class III application or amendment $13,850,581 2,898 9.17 $4,645 $11,925,726 $4,115 $8,759
Class III novel application $1,276,430 36 70 $35,456 $1,275,267 $35,424 $70,880
1

Full costing data spreadsheets, including hourly rates (used to generate unit costs for the portion of current, as opposed to prospective, costs) are managed internally by Health Canada. These rates are not included in the fee proposal.

Return to footnote 1 referrer

Costing for site licence (SL) activities

This fee line includes activities such as:

We used the same costing method and 3-year timeframe that was used for EVAL fees to calculate existing costs for each SL fee. Each type of fee includes costing as follows:

Prospective costs were then added to take into account the following:

While IT costs are allocated to both SL applications and annual fees, IT projects related to site licensing were more heavily allocated to the licence application costs. This is due to the increased level of effort required compared to renewals.

Corporate costs were applied to prospective costs in the same way as for existing costs.

Costing for SL applications and amendments

To arrive at the unit cost, we added existing and prospective unit costs together and then divided this total by the average annual number of sites in the reference period. Since this is effectively a per-site costing, the associated fee (Table 1) applies to each site listed on the application or amendment.

Site licence costs for applications and amendments are summarized in Table 6.

Table 6: Estimated total costs for SL fees (applications and amendments)
Activity Average annual existing costs Average annual volume Existing unit cost Estimated annual prospective costs Total annual costs Unit cost
NHP SL applications and amendments $2,359,973 1,261 $1,871 $3,139,730 $5,499,703 $4,360

Costing for annual SL fee activities

To arrive at the total cost under this fee, we added existing and prospective unit costs for licence renewals, prospective costs for the new risk-based inspection program and all applicable support costs. We then divided this total cost by the total number of inspection hours planned in the first year that cost recovery is implemented. This final number is the per hour inspection cost. We then applied this hourly inspection cost to each site (where a site is a unique building listed on a site licence) based on the complexity of the activity.

Since the inspection program will be risk-based, not every site will be inspected on a cyclical basis. The complexity of a site's activities was used to estimate regulatory level of effort. For example, sterile manufacturing has the greatest potential of risk to health and is therefore the most complex regulated activity to oversee. This regulated activity is therefore expected to receive the most hours of oversight from the inspection program compared to other site types.

Site types from most to least expensive to regulate are as follows:

For sites conducting multiple regulated activities, we will charge the fee associated with the most expensive activity undertaken at that site. This single fee will cover all the other less expensive activities undertaken at the same site.

As warehouses are not currently regulated under the Natural Health Products Regulations, there is no fee associated with those sites, although they will continue to be listed on site licences.

SL costs for the annual fee are summarized in Table 7.

Table 7: Estimated total costs for SL fees (annual fee)
Activity Average annual existing costs Estimated annual prospective costs Total annual costs
SL annual fee $1,623,618 $14,194,368 $15,817,986

The good manufacturing practices (GMP) inspection program is a new program created in response to the CESD audit. We calculated costs based on the expected program size in the first year that cost recovery is implemented and have included all support costs.

The costs related to the GMP program and licence renewal are summarized in Table 8.

Table 8: Estimated total costs related to licence renewal and the GMP inspection program
Site most complex activity Total cost Cost per inspection hour Estimated inspection hours each year per site Unit cost per site
Manufacturing - sterile dosage form $15,817,986 $474.26 77.00 $36,518
Manufacturing - non-sterile dosage form 44.33 $21,025
Importing 38.50 $18,259
Packaging 14.70 $6,972
Labelling 13.30 $6,308

Costing for right to sell (RTS) activities

The RTS fee line funds activities that identify and address safety issues and uphold regulatory compliance. This includes post-market surveillance activities such as:

We calculated costs for post-market surveillance under the RTS fee using the costing method described earlier and the same 3-year dataset as for EVAL and SL fees. All costs were averaged to produce an annual current cost.

We calculated compliance and enforcement costs under the RTS fee using the same costing method with a 1-year dataset (fiscal year 2020-21), as that year's activities represent the expected level of work moving ahead. No additional annual prospective costs for compliance and enforcement were added to these costs.

Annual prospective costs were then added for the following:

Note that corporate costs were applied to prospective costs in the same way as for existing costs.

For example, prospective costs for RTS reflect the following:

We calculated the RTS unit cost by adding the total annual existing and prospective costs and dividing by the estimated number of marketed NHPs. The estimate of 50,000 NHPs, which was used to develop the amendments to the Natural Health Products Regulations in 2021, was applied. (Note: Responses provided by an industry association and information provided by stakeholders responding to a survey were used to help develop this estimate.)

RTS costs are summarized in Table 9.

Table 9: Estimates total costs for RTS fees
Activity Average annual existing costs Estimated annual prospective costs Total costs Estimated volume Unit cost
RTS $20,478,528 $16,357,357 $36,835,885 50,000 $737

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